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ABU DHABI, 12th May, 2023 (WAM) — The Ministry of Finance has issued guidelines for the interpretation of Federal Decree No. 47 of 2022 on corporate and corporate taxation (Corporate Tax Law), for the implementation Federal tax levied on corporate and business profits for the fiscal year in effect.
The Guide provides an item-by-item explanation of the meaning and expected effects of the provisions of the Enterprise Tax Law and its Implementation Decision (issued on 30 April 2023). This guide can be used to explain corporate tax law and how certain provisions must be applied.
Younis Haji Al Khouri, Undersecretary of the Ministry of Finance, said, “The Ministry of Finance is working hard to provide clear guidance to those who are or may be required to pay UAE corporate tax so that they can understand what the law says and why it has been enacted. The Interpretation Guidance reflects our Continue to work to ensure taxpayers are supported and informed before the law comes into force.”
The guide explains the various features of the UAE corporate tax regime that will encourage business activity and minimize the compliance burden on taxpayers. Most importantly, a corporate tax rate of 0% applies to taxable income up to AED 375,000 and a corporate tax rate of 0% applies to eligible free zone personnel in recognition of the historical importance of free zones to the development of the UAE.
In addition, the corporate tax system provides financial and administrative relief to support start-ups and small businesses. Businesses eligible for this relief will not be required to pay any tax and will be able to use the simplified filing requirements when their turnover is below AED 3,000,000.
The guidance describes other features, including 0% withholding tax on cross-border and domestic payments; profits, dividends and capital gains derived by foreign branches from domestic and foreign equity interests are exempt from corporate tax, subject to the relevant conditions ; Foreign tax credits for foreign source income not exempt for the avoidance of double taxation.
Furthermore, it highlights targeted exemptions for certain entities that are subject to emirate-level corporate taxes or are deemed essential to the UAE’s social fabric. These include government entities, investment funds, pension and social security funds, nonprofits and natural resource companies.
The guidance also includes a detailed explanation of the international benchmark transfer pricing documentation requirements and thresholds to ensure that the compliance burden on SMEs is minimized. It clarifies the ability to utilize tax losses without time constraints in future tax periods and to transfer tax losses between tax group companies subject to the fulfillment of relevant conditions. This means that UAE groups can report and pay corporate tax on a consolidated basis as a single taxable entity, ensuring administrative efficiency and simplicity.
Other features include exemption from corporate tax on intra-group transfers and business restructuring transactions, provided relevant conditions are met; the ability for family foundations and trusts to be treated as tax transparent to prevent personal wealth and investment income from being subject to corporate tax; Income is calculated in line with accounting profit, with limited adjustments to determine corporate tax payable.
The UAE will introduce a corporate income tax rate of 9% on taxable income above AED 375,000, one of the lowest competitive corporate tax rates in the world and in line with the UAE’s aim to remain a leading destination for business and investment.
A copy of the Corporations Tax Act and its implementing decisions, as well as further information relating to corporations tax, can be viewed on the Ministry of Finance website.
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